Ten things to know about Canada’s guaranteed annual income debate

Posted September 29th, 2016

By: Nick Falvo, Ph.D., Director, Research and Data, CHF

The possibility of implementing a Guaranteed Annual Income (GAI) is currently one of the hottest topics in Canadian social policy. It gained momentum earlier this year when the Ontario government announced it would undertake a pilot study of the GAI. And in June, the Ontario government announced that former Canadian Senator Hugh Segal will advise them on the “design and implementation” of the pilot. A discussion paper he has authored is expected to be made public this fall, and three months of consultations will start soon in Ontario.

The main idea behind a GAI is to give every adult in Canada a fixed amount of money with few if any conditions and to do away with several other types of income assistance programs (especially social assistance).[1]

Here are 10 things to know about Canada’s GAI debate:

The various proposed GAI schemes have multiple names. The following terms are often used interchangeably: basic income, guaranteed annual income, negative income tax, guaranteed livable income, guaranteed adequate income, social dividend, territorial dividend, state bonus, demogrant, assured annual income and citizen’s wage. Each comes with slightly different connotations and different ‘camps’ of advocates have their own reasons for favouring one term over the other. As of 2009, the most used term in English Canada was the Guaranteed Annual Income; though more recently ‘basic income’ has gained momentum and is the term currently used by the Ontario government.

There’s already been a Canadian pilot study done on the GAI. From 1974 until 1979, a big GAI study was done in Manitoba known as the MINCOME experiment. Successful outcomes from this study (including evidence that the GAI demonstrated notable health improvement among recipients, without reducing labour supply very much) are often cited in support of a broader adoption of a GAI across Canada.

It’s not clear who would get the GAI or how much of it they’d get to keep. Some GAI advocates say a well-designed GAI would be ‘phased out’ as an individual’s income rises—i.e. funds paid to individuals who already make more than the GAI would be taxed back. What’s more, some GAI proposals in the past have excluded young single people. Some advocates also believe that different age groups should receive different benefit amounts. Some believe that immigrants should be excluded from such a scheme until such time that they become full-fledged citizens. But other advocates think the GAI should go to everybody and that everybody should be able to keep the full amount.

Many proponents of the GAI believe it would result in lower administrative costs. One argument in favour of the GAI is that it would result in reduced need for administrative staff. For example, in some Ontario jurisdictions, more than 30% of the total costs of social assistance are attributable to administrative costs. By contrast, my colleague John Stapleton estimates that administrative costs for a benefit where eligibility is determined via the tax system account for just 2-3% of the benefit. But remember: “lower administrative costs” would likely translate into job losses—specifically, the loss of relatively well-paying jobs currently held overwhelmingly by women. Across Canada, more than three-quarters of community and social service workers are women.

The idea of a GAI has support on both the left and right of the political spectrum. Those on the left tend to believe that doing away with other programs will reduce stigma (e.g. the sometimes humiliating experience of having to answer intrusive questions by a welfare worker) and achieve adequacy. Those on the right of the political spectrum like the fact that the GAI might reduce work disincentives currently in place with means-tested programs (e.g. earned income being ‘clawed back’ for social assistance recipients). Those on the right also like the fact a GAI could result in ‘smaller government’—i.e. less regulation pertaining to existing programs. (For more on the GAI’s broad political appeal, see this 1989 article, as well as this more recent piece by John Clarke.)

One reason the GAI has support on both the left and right is that advocates on each side of the spectrum appear to have different ideas as to how generous the GAI would be. Many on the left envisage it as being equivalent to Statistics Canada’s low income measure. As you can see from this table, that would be about $20,000 for a one-income household, $30,00 for a two-person household and $40,000 for a four-person household. Many on the right, by contrast, believe the GAI should be equivalent to current social assistance benefit levels. In Alberta, a ‘single employable’ adult on social assistance receives about $8,000 a year. (For more on social assistance benefit levels across Canada, see this report.)

Not all proponents of a GAI agree on its desired outcomes. Depending on who you ask, the GAI appears to have at least a dozen possible desired outcomes: Is the desired outcome to reduce work disincentives?[2] Is it to reduce stigma? Is it to reduce poverty? Is it to reduce income inequality? Is it to reduce wealth inequality? Is it to increase the generosity of benefits for those currently receiving social assistance? Is it to reduce food insecurity? Is it to improve health outcomes? Is it to improve educational outcomes? Is it to increase gender equality? Is it to increase literacy levels? Is it to decrease criminal activity? Is it all of the above?

Like any social policy initiative, a GAI could have unintended consequences. Specifically, a GAI—particularly one that’s more generous—could potentially create work disincentives of its own. To put it crudely, if the GAI were to make life ‘more comfortable’ for persons not working (and if it were to reduce the stigma currently associated with social assistance) it’s possible that some people currently working at low-wage, precarious jobs would decide to work less. That’s precisely what this 2013 study found—a study co-authored by Jean-Yves Duclos, who is now Canada’s Minister of Families, Children and Social Development. He is also the Minister mandated by Prime Minister Trudeau to “[l]ead the development of a Canadian Poverty Reduction Strategy…”[3] Whether this potential outcome is deemed a good thing or bad thing depends in part on whether one is on the right or left of the political spectrum.

It’s hard to estimate the GAI’s cost. When it comes to how much money the GAI should provide to households, there are important differences of opinion between those on the left and those on the right. With so many different possible approaches, it’s hard to ‘cost out’ a GAI. Some proponents believe the GAI would pay for itself and maybe even save money; others believe it would result in more than $100 billion in additional annual program spending each year (net of savings). During any discussion about the GAI, important questions to ask include: Which existing programs would be cancelled? Would Old Age Security and the Guaranteed Income Supplement be cancelled? Would Employment Insurance be eliminated? (According to a recent CBC News article, the Ontario government has indicated that its upcoming pilot won’t “eliminate or consolidate existing poverty-reduction programs, but rather be designed as a top-up to such programs to lift its voluntary participants above the poverty line.”)

The implementation of a GAI would require a considerable amount of intergovernmental cooperation. How realistic is it to expect all 10 provincial governments, all three territorial governments and the federal government to agree on how much a person needs to live on each year? Which order of government would set the rules? Which would pay for it? Which would administer it? Would there be a separate program in Quebec? How would this work on reserves? How will Indigenous leaders be consulted and where will the funding come from?

In Sum. In recent times, Calgary Mayor Nenshi and Edmonton Mayor Iveson have suggested it is time for Alberta to consider a GAI alternative in the province. Any forward movement on a GAI should give serious consideration to all factors and implications of a GAI, including the intricacies of either phasing out or maintaining existing programs, the needs of specialized populations and cost-sharing.

[2] It’s not entirely clear to me that Canada has a ‘work disincentive’ problem to begin with. According to the most recent Labour Force Survey, there are more than 1.3 million Canadians actively searching for work. Why do we need more?